Sam’s Newsletter

Robo-financial advice is an idea that is as old as the web itself. Vanguard had plans for a robo-advice product in 1999. Now there is a new surge of energy in this space with a large group of fintech startups going after the opportunity. Imagine that you were building a robo-advice product, then what would your business model look like? What service would you provide? What market segment would you go after? What would your revenue model be?

A combination of bank shares plus put options to protect against a fall in the value of those shares looks attractive at the moment. Grossed-up dividend yields are very high and the price of options on banks shares are relatively low. That is a happy combination, especially for SMSF investors.

How often do we still hear statements like “Platforms that connect household borrowers to household lenders will soon push banks aside”. The only reason capital still flows through banks from savers to lenders in 2015 is because the banks have a historic monopoly.”

‘Haircut’ is a term that has a precise meaning in finance. But many journalists and commentators use the term incorrectly, which is unfortunate because ‘haircuts’ have played a major role in the GFC. Knowing what haircuts really are is crucial to understanding the liquidity crises of the GFC.

Inflation fell rapidly in every major economy during 2014 - see the graph below. In 2015 global inflation has temporarily stabilised at very low levels. What will happen next is the biggest question facing global investors

Bank hybrid notes have received a lot of unfavourable press in the last year. I think many commentators simply don’t understand them. I like them a lot and think their combination of high yields and good capital protection should give them a place in most investor’s portfolios as a solid defensive asset.

The Greek debt crisis is in a brief hiatus that can only last for weeks. Then the impasse between the newly elected Government of Greece and a coalition of countries led by Germany will have to be resolved. An important issue here is the rapidly changing way in which the German public perceives the role of their country in Europe.

There is growing concern that a bubble is developing in the residential property market in Australia. Prices have certainly zoomed up in Melbourne, and especially Sydney, over the last two years; see the chart below of Australian residential property prices.

I am a big fan of Jeff Bezos, the founder and CEO of Amazon. Reading his views on ‘complexity’ in business changed my thinking on that subject quite a lot. Bezos says that Amazon’s core competency is the management of complexity. He intends to create value for his customers by allowing them to outsource complex parts of their business to Amazon. But is he getting distracted?

When a share market investor says that they are ‘long volatility’ or ‘short volatility’, what precisely does that mean? Usually being ‘long’ or ‘short’ an asset means that you have bought it or sold it. To go long BHP you would buy BHP shares. To short BHP you would borrow BHP shares and then sell them.

A lot of new firms listed on the Australian Securities Exchange (ASX) for the first time in 2014. Over $16 billion of shares were sold in 60 initial public offerings of shares (IPOs). This high value and high number of IPOs represented a re-opening of that market. The well known graph below is taken from the RBA chart pack. It shows that in the six years from 2008Q1 through to 2013Q4 there was only one good quarter for IPOs - in 2009Q4 when Myer was refloated on the ASX.

What is the biggest market to be ‘disrupted’ in the last 10 years by new technology. Is it retail markets like books and music? Is the taxi market? Is it the print media? No, it is the global oil market. New production technologies have increased the supply of oil and gas to the point where the oil market has been disrupted.

Currency issues are very salient in the Australian finance system, including wealth management. Australia is, after all, a small open, resource based economy with a floating currency. I am going to talk about the $A quite a lot in this newsletter over time. To begin with I just want to look at the history of the $A to bring out the following points.

Newsletter

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